Surcharge Away! Judge Invalidates Surcharge Ban.

I have two thoughts this morning. First, however much the merchants are paying their lawyers, it’s worth it, and my General Tsao’s Chicken just got more expensive.

On Friday, a federal district court in Manhattan struck down New York’s law prohibiting retailers from charging surcharges on credit card purchases (see Expressions Hair Design et al v. Schneiderman, No. 13 Civ. 3775 (JSR), Oct. 3, 2013). New York is one of ten states that restrict such charges. Prior to last year, the statute wasn’t all that important because surcharge bans were included in the standard merchant contract between merchants and VISA and MasterCard. Following last year’s anti-trust settlement under which Visa and MasterCard agreed to do away with this provision, a group of retailers brought a suit claiming, among other things, that the statute violated the first amendment.

The offending statute, which has been in place since 1984, provides as follows: “No seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means. Any seller who violates the provisions of this section shall be guilty of a misdemeanor punishable by a fine not to exceed five hundred dollars or a term of imprisonment up to one year, or both.” – See NYS General Business Law, section 518.

According to the judge, this statute is unconstitutional and vague and keeps retailers from explaining to consumers the true costs related to a transaction. For example, the existing law already permits retailers to offer discounts for individuals who pay in cash. This is why gas station owners consistently offer lower prices for people who pay in currency as opposed to a charge card. The crux of what the judge contends is wrong with what he describes as an “Alice in Wonderland” piece of legislation is that a gasoline station owner careful or sophisticated enough to always characterize the lower prices as a discount for cash is not violating any provision of the law; but if a colleague down the street described the higher price as a credit card surcharge, he has violated the law.

To the Judge, the distinction between a surcharge and a discount comes down to semantics. Very respectfully speaking, in my ever so humble opinion, semantics matter. As explained by the Oxford American Dictionary, a surcharge is “an additional charge or payment from: retailers will be able to surcharge credit-card users.” Let’s be honest, the language clearly does matter as merchants have been trying for more than 3 1/2 decades now to remove bans on surcharges, first on the federal level and now on the state level. If the New York State Legislature wants to deter discrimination against credit card users by prohibiting the use of credit card surcharges, it is free to do so and the language is well understood. The fact that from an economic standpoint there is little practical distinction between a discount and a surcharge is irrelevant to the statute’s legality.

I hope this is one the AG is going to appeal. As for my General Tsao’s chicken, when my blog, like this one, takes a little too long to write and I go out for lunch instead of relying on leftovers, I go to a Mom and Pop Chinese place down the street run by a nice couple that for years has deterred me from using my credit card by charging two dollars every time I use a card to pay. I doubt they knew they were violating the law, but now that a federal judge has told them that their free speech rights were being violated by not being able to gauge me, they can breathe a little easier.

Here is my government shut-down quote of the day from Long Island House Representative Peter King:

“I don’t consider these guys conservatives. I think the party is going in an isolationist trend. It’s appealing to the lowest common denominator in many ways. And this whole threat of defunding the government, to me, is not conservative at all,” said King, who added later: “Maybe we do live in different worlds. These guys from the Ted Cruz wing live in their own echo chamber.”